Improving Insights Into Third-Party Risk (Series 4 of 4)

Reducing the Cost of Physician Self-Referrals with Better Compliance: What SIM & CLM Offer Healthcare Providers in Managing Stark Law

Physicians have been abiding by a code of ethics since antiquity. Next time you go to your doctor’s office look around and you may see the Hippocratic Oath hanging on a wall. Considered a rite of passage written by Hippocrates of Kos in the 5th century BCE, the oath requires a new physician to swear to uphold specific ethical standards.

Fast forward 2500 years later, we find our modern society with laws that manage complexities and conflicts of healthcare, which can challenge the traditional ethics based on the different relationships that exist today. Consider the “ethics” of referrals and payment like those of the Stark Law.

The Stark Law was enacted to prevent referral sources — namely physicians and physician extenders — from inappropriately profiting from referrals. Started as part of a series of federal laws in 1990, the original legislation prohibited a physician from referring a Medicare patient to a clinical laboratory if the physician or his/her family member(s) has a financial interest in that laboratory. Revision to the Stark Law in 1993 extended the provisions to include Medicaid patients and Designated Health Services (DHS) other than clinical laboratory services.

Moreover, there are some exceptions to the law: Stark regulations allow non-monetary compensation (not more than $300 per year) to physicians from a referred-to entity; preventive services are exempted as long as they meet CMS’ relevant frequency limits and are reimbursed based on a Medicare fee schedule; and hospital incidental benefits are permitted if they meet a variety of requirements.

The complicated nature of Stark means hospitals must be very careful about compensation arrangements with physicians. For instance, organizations must be able to designate the differences between employed physicians, independent physicians and medical groups, and recruitment agreements. Stark Law compliance becomes critical for independent contracts and recruitment agreements. Not having the ability to understand all these designations can be a challenge in trying to understand how physician relationships are being tracked.

Furthermore, contracts between physicians and hospitals must fit within the seven “safe harbors” of Stark Law in order to fully alleviate violation risk:

The contract’s duration must be at least a year;

The contract must be in writing and signed by both parties;

It must specify aggregate payment which is set in advance;

Payment is reasonable and fair market value;

Payment must not relate to volume or value of business;

The exact services to be performed must be outlined; and

The services be commercially reasonable.

Civil penalties for violating the law can be severe too. They can include:

Denial of payment for the service billed;

A $15,000 civil penalty for each claim submitted as a result of an improper referral;

Refunding every payment received for services that were referred in violation of the law;

A $100,000 civil penalty for entering into a scheme designed to circumvent the law; and

While physicians must be aware of the federal Stark law, it is imperative that they also understand that many states have adopted their own self-referral laws that can differ significantly from the federal law.

Working with healthcare clients as part of an effort to avoid third-party risk helps healthcare organizations enforce the Stark Law statutes, ranging from managing supplier information and supplier relationships to the signed contracts that need to be in place before physicians are reimbursed, or physicians groups are reimbursed for services they perform in hospitals.

What we at Determine often find, however, is that many hospitals still have no central controls. Individuals tend to be responsible for whatever contracts are relevant to their functions, and those signed contracts are on paper and not stored electronically.

Without the proper systems, there is no way of knowing how many contracts exist or whether all contracts have undergone appropriate review and approval. While healthcare providers may have policies in place, in theory, there is no true ability to be confident of compliance without systems such as supplier information management (SIM) and contract management.

Determine helps organizations evaluate how well healthcare organizations are managing physician contracts by offering the ability to centralize and segment suppliers, manage agreements between providers and referral sources through eSignatures, implement extensive supplier and contract search capability, and automated alerts based on document and contract initiation/renewals.

Through these approaches, Determine can improve compliance to Stark Law by

Increasing control in the contract management function across different jurisdictions;

Improving the ability to enforce appropriate review and approval processes;

Reducing the risk of non-compliance with Stark Law provisions, including non-monetary compensation; and

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